Has the USD gone too far or does it have room for more gains?

The USD has been bullish since the start of the year. There were some bearish periods during this period, but the overall trend remains quite bullish as seen by the DXY USD index. The moving averages provided support during the lower pullbacks and recently the 20 SMA (grey) came into play, which is a bullish signal.

USD DXY Index Daily Chart – Trading above 110 points

Moving averages acting as support for DXY during pullbacks

Even as the US economy shows signs of slowing, the greenback soared against major currencies, from the 19-member European euro to the Chinese renminbi. An index of the dollar against other major currencies is trading around a two-decade high.

Investments tend to flow into higher-yielding currencies, and the greenback has rallied in part because the Federal Reserve is raising interest rates more aggressively than some other central banks as it seeks contain inflation, according to Kamakshya Trivedi, head of Global Foreign Exchange, Interest Rate Research and Emerging Markets Strategy. The dollar, which is seen as a safe haven during the turmoil, also rose as worries grow over the energy price shock that will dampen economic growth in many parts of the world.

But Trivedi says there are signs the dollar’s rise is in its “later innings”, as it nears extreme levels against currencies like the Japanese yen or sterling, which are trading at its lowest level against the greenback since Margaret Thatcher was the UK’s prime minister. We spoke with Trivedi about the risks to emerging market currencies from the rally in the dollar and its outlook for the global reserve currency.

EUR/USD live chart


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